Key Terms
- Principal: The person granting authority.
- Agent (attorney-in-fact): The person receiving authority. The agent does not need to be a lawyer.
- Durable: The POA remains effective if the principal becomes incapacitated.
- Springing: The POA takes effect only upon a specified event, usually the principal's incapacity.
Types of Power of Attorney
| Type | What it does | Common uses |
|---|---|---|
| General | Broad authority over financial and legal matters | Comprehensive planning, extended travel |
| Limited (special) | Authority for a specific task or period | Selling a house, signing closing documents |
| Durable | Continues if the principal becomes incapacitated | Core estate planning document |
| Springing | Takes effect only when a triggering event occurs | People who want authority to start only at incapacity |
| Health care POA (health care proxy) | Authority to make medical decisions when the principal cannot | Hospital and treatment decisions |
Under the Uniform Power of Attorney Act, adopted in some form by roughly 30 states, a financial POA is durable by default unless it says otherwise. In other states, the document may need specific language to stay effective after incapacity.
Financial vs. Health Care Decisions
A financial POA can cover banking, paying bills, managing investments, filing taxes, dealing with government benefits, buying or selling property, and handling insurance. Certain "hot powers" — such as making gifts, changing beneficiary designations, or creating or changing trusts — often must be granted expressly.
A health care POA names someone to make medical decisions when you cannot. It is often paired with a living will (advance directive) that states your wishes about life-sustaining treatment. Many states combine these in a single advance directive form.
The Agent's Duties
An agent is a fiduciary and must:
- Act in good faith and in the principal's best interest
- Act only within the authority granted
- Keep the principal's money separate from the agent's own
- Keep records and receipts
- Avoid conflicts of interest and self-dealing
- Follow the principal's known wishes
An agent who misuses the principal's money can be required to repay it and may face civil and criminal penalties.
How to Create a Valid POA
Requirements vary by state, but generally:
- The principal must have capacity to understand what the document does when signing.
- The document must be in writing and signed by the principal.
- Most states require or strongly encourage notarization; some also require witnesses, especially for health care POAs.
- A POA used for real estate transactions usually must be notarized and may need to be recorded.
Many states provide statutory forms. Banks and other institutions are more likely to accept a properly executed statutory form, and under the Uniform Act, institutions that unreasonably refuse a valid POA can face liability.
When a POA Ends
A power of attorney ends when:
- The principal dies (the executor of the estate then takes over)
- The principal revokes it while competent
- A non-durable POA ends when the principal becomes incapacitated
- The stated purpose is completed or the end date passes
- A court invalidates it
- In many states, an agent-spouse's authority ends upon divorce
To revoke, sign a written revocation and notify the agent and any institutions that have a copy.
POA vs. Guardianship
If a person becomes incapacitated without a valid durable POA, family members may have to ask a court to appoint a guardian or conservator. That process can be slow, expensive, and public, and the court supervises the guardian. A durable POA signed in advance usually avoids this.
Protecting Against Abuse
- Choose an agent you trust completely; consider naming a successor agent.
- Limit powers you do not need to grant, especially gifting powers.
- Require the agent to provide periodic accountings to you or another family member.
- Consider naming co-agents or a monitor.
- Report suspected financial exploitation to Adult Protective Services or law enforcement.
